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Why are owners of Gutter Cat Gang cats buying digital “vials” of “juice” that create new cats from existing cats and cat sacrifices? And why should web3 watchers care? According to Partner Michael Kasdan, this is a sophisticated market and product engineering at work.

The Gutter Cat Gang is described on OpenSea as “a collection of 3,000 randomly generated NFTs on the Ethereum blockchain that double as membership tokens into the Gutter Cat Gang.” It is one of the higher profile NFT projects, with the average recently selling price for Gutter Cat Gang NFTs (which look like Cat, Rat, Pigeon, and Dog avatars) at over $9500 each.

On September 10, 2022, Gutter Cat Gang dropped a new NFT. The new NFT was not a new cat avatar for the collection. Rather, it was but a digital NFT product that could be purchased and then used by cat holders to create “clones” of their cat avatar with new features. As Knocked.eth (@GitKnocked on Twitter) has so aptly summarized: Old Cat + Sacrificial Cat + Juice = Old Cat + Clone Cat.

This allows GCG to raise more money without diluting the number of total NFT’s in the ecosystem. By releasing “vials” and setting the rules that two clones and one vial “burns” (i.e., eliminates) one of the clones and replaces that NFT with an “upgraded” clone (D2), GTC is doing a few interesting things at once. First, it is creating demand and buying pressure on the market for GCG avatars, because two are needed in order to use the vial to create a clone. Second, the sale of the vials raises capital, while the “burn” and upgrade process removes low-cost GCG avatars from the market, thus keeping the floor-price high for GCG avatars. This NFT vial/juice clone creation is one illustration of why digital assets are so interesting: there is a vast potential for value creation through creative new “products” like this. This is a fascinating way to create value, evolve assets and a brand.

It reminds me quite a bit of creative financial instruments and it evokes Wall Street tech/math quants building derivative financial products to create value out of thin air. (But, hopefully not doing it in a bad way as what came to roost in ‘08 when they obliterated the economy!). Of course, this is not limited to “vials” of cloning juice. That is one early technique that’s been used here. But because there are digital assets, there are many possibilities.

Another possibility may be found in the so-called “dynamic NFTs.” With dynamic NFTs, the NFT, whether the art, utility or IP rights can evolve and change over time. You can program in these changes to the asset over time or have them be based on outside events. For example, if you’re a holder of the NFT on it’s three-year anniversary, the NFT could be programmed to provide you with an extra digital asset or change in some other way. Or if some event happens in the world – like the NY Yankees win a World Series – your Yankees NFT asset could be programmed to change in some way that provides the holder with more value.

Dynamic NFTs really are only limited by our own imaginations. Another example where the NFT changes based on outside events is an NFT project tied to a particular charitable cause. If the charity is funded, all the NFTs in the collection get a new utility or new NFT. With a hat tip to Lisa Duggan (@Motherhoodmag on Twitter), this is also similar to thinking about the problem of how Apple creates demand for the next iPhone. How do you do that with digital assets? This is one way, and it is incredibly interesting.

This is all value creation through creative IP strategy on some level! On one level we’re talking about cat pictures & digital juice. But on another level, we’re talking about a fascinating case study in economic, tech, IP and business strategy for a brand new asset class.

To view the original Twitter thread, click here.